The U.S. Department of Justice is pulling out of a proposed settlement with the National Association of Realtors in order to broaden its investigation into the trade group’s rules, the agency announced Thursday.
The DOJ sued the 1.4 million-member trade group in November, alleging some of its rules are illegal restraints on Realtor competition. The federal agency filed a proposed settlement at the same time as it filed the antitrust suit requiring NAR to repeal or change several rules regarding buyer broker commissions and lockbox access.
But now the DOJ says NAR refused to modify the settlement to protect the agency’s ability to investigate other NAR conduct that could impact competition in the real estate market. Therefore, on Thursday the DOJ filed a notice of withdrawal of consent to the proposed settlement and also filed to voluntarily dismiss its complaint without prejudice. “Without prejudice” means the agency can file suit again at a later date.
“The department is taking this action to permit a broader investigation of NAR’s rules and conduct to proceed without restriction,” the DOJ said in a press release.
“Because the settlement resolved only some of the department’s concerns with NAR’s rules, this step ensures that the department can continue to enforce the antitrust laws in this important market,” the DOJ added.
The DOJ noted that NAR’s rules and policies affect millions of real estate brokers and agents and therefore millions of homebuyers and sellers who paid more than $85 billion in residential real estate commissions last year.
“The proposed settlement will not sufficiently protect the Antitrust Division’s ability to pursue future claims against NAR,” said Acting Assistant Attorney General Richard A. Powers of the Justice Department’s Antitrust Division in a statement.
“Real estate is central to the American economy and consumers pay billions of dollars in real estate commissions every year. We cannot be bound by a settlement that prevents our ability to protect competition in a market that profoundly affects Americans’ financial well-being.”
In an emailed statement, NAR spokesperson Troy Green told Inman, “This is a complete, unprecedented breach of agreement by the Department of Justice to withdraw its consent from a fully negotiated settlement that had been approved by the head of the Antitrust Division and we had begun to implement. The National Association of Realtors’ rules and policies have long sought to ensure fair and competitive real estate markets for home buyers and sellers.
“Grounded in our commitment to act in the best interests of buyers and sellers, we regularly update our rules and policies to protect consumers and provide transparency. NAR has fulfilled all of our obligations under the settlement agreement and now DOJ is inexplicably backing out. If the Department does not live up to its commitments under the terms of the agreement, we are confident in our pro-consumer and pro-competition policies.”
The proposed settlement would have required NAR to:
- Repeal any rule, and to require its member boards and multiple listing services to repeal any rule, that “prohibits, discourages, or recommends against an MLS or MLS Participant publishing or displaying to consumers any MLS database field specifying compensation offered to other MLS Participants.”
- Adopt a rule that requires all MLS participants, including subscribers, to provide to clients information about the amount of compensation offered to other MLS participants.
- Repeal any rule, and require all member boards and MLSs to repeal any rule, that permits all MLSs and MLS participants, including buyer brokers, to represent that their services are free or available at no cost to their clients. NAR must also prohibit all MLSs and MLS participants from representing that their services are free or available at no cost to their clients.
- Adopt a rule that prohibits MLS participants from filtering or restricting MLS listings that are searchable by or displayed to consumers based on the level of compensation offered to the buyer broker or the name of the brokerage or agent, and repeal any rule that permits or enables such filtering.
- Adopt a rule that requires all member boards and MLSs to allow any licensed real estate agent or agent of a broker, to access, with seller approval, the lockboxes of those properties listed on an MLS.
In March, NAR told Inman that the trade group was continuing to work through the details of the rule changes with the DOJ, “which is a process that can take months.”
The Consumer Federation of America has previously said the proposed NAR-DOJ rule changes would fail to significantly increase price competition between brokers, but would at least “discourage blatant discrimination against discount brokers and the steering of buyers to high-commission properties.”
The settlement would also have required NAR to appoint an Antitrust Compliance Officer whose initial appointment and replacement must be approved by the DOJ. If that officer or NAR management were to learn of any potential violation of the settlement, NAR would have been required to investigate and cease or modify the potentially violating activity so that it complies with the settlement terms. NAR would also have had to file a statement with the DOJ describing the potential violation and steps taken to remedy it.
The proposed settlement stated, “Nothing in this Final Judgment shall limit the right of the United States to investigate and bring actions to prevent or restrain violations of the antitrust laws concerning any Rule or practice adopted or enforced by NAR or any of its Member Boards.”
However, in its withdrawal notice, the DOJ said it sought NAR’s consent to amend that section of the proposed deal “to eliminate any potential limitation on the future ability of the United States to investigate and challenge additional potential antitrust violations committed by Defendant,” but that NAR “declined to consent.”
The DOJ did not say which other avenues it planned to explore as it broadens its investigation. But NAR has been hit with several other antitrust lawsuits — some of which the DOJ has involved itself in — and that may offer some clues.
NAR — along with real estate franchisors Realogy, Keller Williams, RE/MAX and HomeServices of America — is fighting several lawsuits filed on behalf of buyers and sellers challenging NAR’s MLS rules, particularly a rule that requires listing brokers to make a blanket, unilateral offer of compensation to buyer brokers that is either a percentage of the gross sale price of a home or a definite dollar figure when entering a home in a Realtor-affiliated MLS.
The plaintiffs in the suits want to have homebuyers pay their broker directly, rather than have listing brokers pay buyer brokers from what the seller pays the listing broker, in order to discourage steering and encourage buyers to negotiate lower buyer broker commissions. Such an outcome could upend the U.S. real estate industry by effectively forcing changes in how buyer’s agents are traditionally compensated.
In a recent report, the CFA argued that some one million homebuyers and sellers pay several billion dollars more per year in commissions than they should due to “double-dipping” agents and expressed support for the multiple major lawsuits seeking to de-couple listing broker and buyer broker commissions.
“If buyers and sellers were each required to compensate their agents, they would be less willing to pay commissions of 5-6 percent commissions to double-dippers,” the report said.
In an emailed statement Thursday, CFA senior fellow Stephen Brobeck told Inman, “DOJ’s decision is good news for consumers. Although the proposed settlement would have given buyers more information about buy-side commissions, it would not have given these home purchasers adequate opportunity to negotiate these fees. That would require an uncoupling of buyer and seller commissions, the main goal of class action lawsuits that have advanced in the courts.
“Hopefully, DOJ will now seek not only greater price transparency but also structural changes that allow consumers to fully benefit from this transparency.”
In October 2019, the DOJ filed statements of interest in two of the major suits — dubbed Moehrl and Sitzer after their lead plaintiffs. The filings alleged NAR was inaccurately portraying a 2008 settlement agreement between NAR and DOJ in the commission lawsuits and that that agreement only resolved the DOJ’s antitrust claims against NAR “for its exclusionary policies targeting brokers using innovative platforms” and did not regard any other NAR policies.
In early June, the DOJ put its finger on the scale in an antitrust lawsuit filed by a former pocket listing service against NAR and three of the nation’s largest MLSs, arguing that the lower court erred in dismissing the suit in February. At the same time, the DOJ revealed it had investigated the pocket listing policy at issue in the case, the Clear Cooperation Policy, but ultimately closed the investigation.
Top Agent Network, another private listing network that has also sued NAR for antitrust violations over the Clear Cooperation Policy, recently took aim at the office exclusives exception in its third amended complaint against the trade group.
In March, real estate brokerage REX Real Estate filed an antitrust lawsuit against NAR and Zillow over NAR rules that require Zillow to segregate non-MLS listings from MLS listings on its website, including listings from REX, which eschews MLSs. A court recently denied REX’s motion for a preliminary injunction in the case and told the brokerage to stop calling Zillow and NAR a “cartel.”
REX has made a name for itself as a self-proclaimed disrupter of organized real estate and its CEO Jack Ryan told Inman in November that the company had been working directly with the DOJ to share the “many ways that the NAR and the MLS set their practices to extract money from homebuyers and sellers,” including by providing evidence of agent steering against discount brokerages.
REX noted that it had submitted a comment letter on the proposed settlement to the DOJ in February calling for the agency to end the NAR rule requiring the sharing of commissions between buyer and listing brokers. Last year, REX commissioned a study, published in March, by government attorney Mark Nadel which argued that real estate commissions are inflated by as much as $50 billion per year due to a lack of price competition resulting from this rule.
In a press release Thursday, REX applauded the DOJ’s “historic” action nixing the proposed settlement and reopening its probe into NAR’s policies.
“Today’s unprecedented decision is a sign of hope for home consumers that the federal government is standing up to finally hold the real estate cartel accountable for overcharging home sellers and buyers tens of thousands of dollars on every transaction and steering consumers to line their own pockets,” Ryan said in a statement.
“Let’s have the DOJ finish the work they began and put real estate, and a trillion dollars over the next ten years, back in the hands of American consumers.”
Editor’s note: This story has been updated with comments from NAR, CFA and REX Real Estate and additional background on antitrust lawsuits filed against NAR.